Good day, ladies and gentlemen, and welcome to the Progyny Inc. First Quarter 2025 Earnings Conference Call. At this time all participants are in a listen-only mode and the floor will be opened for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Hart. James, the floor is yours.

Thank you, Tom, and good afternoon, everyone. Welcome to our first quarter conference call. With me today are Pete Anevski, CEO of Progyny; Michael Sturmer, President; and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I'd like to remind you that our comments and responses to your questions today reflect management's views as of today only and will include statements related to our financial outlook for both the second quarter and full year 2025, and the assumptions and drivers underlying such guidance, our anticipated number of clients and covered lives for 2025, the demand for our solutions, our expectations for our selling season for 2026 launches, anticipated employment levels of our clients and the industries that we serve, the timing of client decisions, our expected utilization rates and mix, the potential benefits of our solution, our ability to acquire new clients and retain and upsell existing clients, our market opportunity and our business strategy, plans, goals and expectations concerning our market position, future operations and other financial and operating information, which are forward-looking statements under the federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business as well as other important factors. For a discussion of the material risks, uncertainties, assumptions and other important factors that could impact our actual results, please refer to our SEC filings in today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During the call, we will also refer to non-GAAP financial measures such as adjusted EBITDA and adjusted EBITDA margin and incremental revenue. More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures are available in the press release, which is available at investors.progyny.com. I would now like to turn the call over to Pete.

Thanks, Jamie. Thanks, everyone, for joining us today. I'm pleased to report we've had a good start to the year with double-digit growth in both revenue and adjusted EBITDA over the prior year period, yielding record quarterly results for both of those, as well as gross margin expansion and the generation of significant quarterly cash flow. In addition, we also made meaningful progress in laying the foundation for future growth through both our channel partnerships as well as the previously announced investments to expand our product portfolio and platform, enhance our member experience and extend our leading position in women's health and family building. As the second quarter begins, we're seeing that member engagement remains consistent with first quarter levels, both in terms of utilization as well as ART cycle consumption. Following the strong start, we're pleased to be able to raise our full year guidance. The guidance for the remainder of the year continues to reflect a range of engagement and activity, taking into account both what we experienced in 2024 as well as the uncertainty in the macro environment, which Mark will detail for you shortly. The forces driving member demand are reflected in the latest market data. The CDC recently reported that birth rates for women 25 and younger are now at record lows, while the rates for women between 30 and 44 continue to increase. To put that into perspective, although the absolute number of babies born in the U.S. was down nearly 8% over the last 10 years, the number of babies born to women 30 year over was up 15%. This divergence has been happening for decades now, literally, and it clearly shows that people are increasingly deferring family building to later in life. A different statistic that sharply highlights the significance of this…

Thank you, Pete, and good afternoon, everyone. I'll begin with our first quarter results and then provide our expectations for the second quarter and full year. First quarter revenue grew 16.5% to $324 million, primarily due to an increase in the number of clients in covered lives as compared to a year ago. The growth rate this quarter was somewhat enhanced by the unfavorable treatment mix shift that we highlighted to you a year ago. Though this was short-lasting and only impacted the first quarter last year, there was a negative $15 million impact as we disclosed to you at the time. If we were to normalize for this $15 million, revenue this quarter still grew at a double-digit rate. As discussed last quarter, revenue for the first half of 2025 will include a large former client who has provided for an extended transition period for members meeting certain criteria. In the first quarter, this contributed approximately $31 million, slightly more than the approximately $28 million to $30 million that we had anticipated. Excluding the impact of this client from both 2024 and 2025, first quarter revenue increased 19%. If we further normalize the year ago period for the $15 million in unfavorable mix from the prior year, revenue this quarter increased more than 12%. In short, whichever way you prefer to look at it, this year has begun with solid growth in our core business. As of March 31, we had 532 clients with at least 1,000 lives, representing an average of 6.7 million covered lives in the quarter. This is consistent with what we had expected coming out of the most recent selling season. I'll note that members this quarter do not include the large client under the transition of care agreement. This compares to 451 clients and…

Thank you very much. We’re now opening the floor for questions. [Operator Instructions] Your first question is coming from Anne Samuel of JPMorgan. Please go ahead.

Congrats on the great print tonight. And Pete, congratulations on your Time Magazine recognition, really great to see the emphasis there on fertility benefits as well. If I were to look at historical seasonality of cycles per utilizer, you tend to have a step-up in 2Q from 1Q. But when we look at the guide, it implies kind of a more similar rate in 2Q to 1Q. So, I was just curious, is that kind of to account for some of the uncertainty that you mentioned? Or is there something else going on that might change kind of the -- how we should be thinking about the normal seasonality of utilization?

Annie, thanks so much. Yes, we're excited for the recognition. We're proud of what we're doing here. So, it's great to see that. As it relates to your question, it is more around having the guidance reflect the uncertainty than it is something that we're seeing is the simple answer.

Helpful. And then maybe just one more. You called out the gross margin expansion this quarter and it was up really nicely. I was just wondering, can you speak to the drivers there and just how we should be thinking about that line for the rest of the year?

Yes. So yes, as I said in my prepared comments, I think you have to take into consideration last year was a bit suppressed given the revenue shortfall from the mix issue. Again, we typically are leveraging our internal folks as revenue grows, and that was an unexpected reduction in revenue. So, we were a bit suppressed last year. And we had a good quarter this year. I think, again, as we continue to make some of the investments that we've been highlighting, a portion of those do actually hit in our cost of services area and will bring gross margins down. We haven't necessarily guided to a specific number for the year, but we do expect it to expand for the full year versus the full year of '24. I hope that's helpful.

Your next question is coming from Jailendra Singh of Truist Securities. Jailendra, your line is live.

Congrats on a strong quarter and congrats, Pete, on the recognition. I want to follow up on your comments around the 2026 selling season. I know you guys noted that it is still early and most of the sales have been not now from last year. But outside of that, are you seeing any indications of employers putting the RFP process on hold? Are things taking longer, which could mean the decision-making could be a little delayed this year? And related to that, you also talked about the sales goal for the year. Is your sales goal similar to your historical target of adding as many lives to the year prior? Of course, it's 1.1 million lives excluding Amazon?

Yes. It's Michael. Thanks for the question. So first, yes, our sales goal is the same as it is every year. We're trying to bring on as much new business as we can. And as we said on an Investor Day last summer, we're targeting at least to add 1 million new lives each year. So that's unchanged. As for the pipeline, you sort of referenced it. It certainly is early, and there's certainly a lot more pipeline ones ahead of us that we continue to bring on new opportunities. And important sort of from a comparable perspective, the number of opportunities and dollars are comparable to prior year, while we're seeing the average lives lagging a little bit over -- from last year. That could be a lot of factors as that could be the timing. Certainly, some of the macro environment, macroeconomic environment aspects could be driving a little bit of that and a little bit of uncertainty in some businesses. But we're certainly seeing a wide array and diversity within employers that we have in the pipeline.

And then...

Pete, would you add something?

Yes. Specifically, to your question, we're not seeing a slowdown in -- or sort of pauses, if you will, the way you were describing it in RFP activities or sort of processes that are started, that's not what we're seeing. And so, I just wanted to make sure we just answered that question specifically.

Okay. And then my follow-up, I want to ask about the 16.3% incremental adjusted EBITDA margin on incremental revenue in the quarter. Can you share some thoughts on that metric? Where do you see that metric trending near term? And how do you think about the path to getting this metric back to that historical 20% plus longer term?

Yes. So, we had talked about it at our previous call at year-end when we put out our guidance for the year overall. The expectation for this year, in particular, due to the incremental investment that is going to hit the P&L as well as incremental investment, which we called out, that will be higher CapEx is, I'll call it, onetime-ish, if you will, right? So overall $15 million of incremental P&L expense relative to the investments in the platform and the product expansion and the investments and the acquisitions that we made is going to hit the P&L this year, makes a big difference relative to margin and incremental revenue. So, when you talk about the short term, that's sort of how you should look at the year. But those are all really important initiatives that will continue to position us and hold our position as the leader in the space.

Your next question is coming from Michael Cherny of Leerink Partners. Michael, your line is live.

This is [Ahmed] on for Mike Cherny. Congrats on the great quarter. If I could ask about the new modules that you've been adding. I appreciate the color you guys gave, but if you could double click on that, which modules are getting the most interest right now? We'd love to get any additional color on how you think about how they will eventually ramp longer term to your longer-range targets?

Yes. I think, well, it depends on how you define interest. From a sales perspective, last year and so far early this year, all of the models, if you will, are getting interest where we had 20% of clients overall last year, and as the sales year is starting this year, by one or more of the new modules. As it relates to engagement with the modules, there's a higher level of engagement with the menopause product. And the reason for that is that it's a much larger addressable audience vis-à-vis the maternity product. And so that's probably -- that's the easiest answer.

Got it. And if I could ask another one, are you noticing any incremental concern from employers in your conversations with them about 2026? I know you commented about the selling season, it's really early, but just any sort of hesitation there?

I think, again, sort of as I was referencing earlier, there's certainly opportunities and dollars are comparable to last year. And again, lives or average lives are lagging a little bit. Again, it's hard to speculate at this time. But certainly, there could be a little bit of the macro environment as a factor creating some uncertainty with some businesses. Though it's certainly not all businesses. And that's also why it's important as you look at our book and with over clients in over 45 different industries, right? That diversification really comes into play here, and we're seeing that in the pipeline as well.

[Operator Instructions] Your next question is coming from David Larsen of BTIG. David, your line is live.

Congratulations on the good quarter and the sort of resurgence in revenue growth. Can you talk about potential tariffs on your book of business? Could that possibly increase your cost of goods for your members for like the specialty medications or not? And would you be able to sort of pass those along to customers or not? Just any color there in terms of your own cost base? And then what you might be hearing from clients, customers' health plans. Is this even a topic of discussion or not?

Relative to existing tariffs that are announced, not really an impact for us on costs. Relative to comments that are out there around potential tariffs on pharmaceuticals, based on what's been discussed to-date, end-state drugs don't appear to be something that's being considered in terms of tariffs, but tariffs on potentially materials that go into drug manufacturing. So, hard to say -- hard to say if it will have an impact. We do have flexibility in our arrangements with our clients should there be an increase, but that's not the only lever that we have. We would also work with our industry partners to mitigate collectively the impact to plan sponsors is essentially how I think about it.

Okay. And then just another quick one. It seems to me like with the 100 basis point increase in the unemployment rate that we saw last year or the last 1.5 years, with rising interest rates, that may have been faster in like the temporary slowdown in '24, but it seems to me like that's really stabilized now that we're post-election. Just any thoughts on Trump's views on fertility? I think you said he wanted health plans to cover IVF. Just any thoughts there? Will that have an impact or not?

Well, there's an executive order that was put out in February, asking for a recommendation around both protecting access as well as addressing affordability. That -- the readout from that executive order is expected, unless it moves, is expected May 19. And so from that perspective, the spirit of the order is positive relative to those two things. Besides that, there's very little information being leaked or otherwise in terms of what direction that recommendation may go. Hard for me to say how positive it may be or not relative to what that executive order recommend. But it's recommendations, policy recommendations, it's not legislation as it sits now in terms of how the executive order was written. So, we'll see what happens, but again, I start out with my first statement that the spirit of the order is positive relative to IVF.

Your next question is coming from Sarah James of Cantor Fitzgerald. Sarah, your line is live.

You mentioned not anticipating the gross margin beat to continue through the year due to investments. But given the size of the beat, it implies a pretty sizable investment. So, could you go into a little bit more detail on what those are? How much is hiring and what are the non-staff-related investments?

Yes. So overall, we talked about the incremental investment related to both the platform as well as the product capabilities and expansion and the investments in the acquisitions to be -- that's going to hit the P&L to be roughly overall $15 million. The details of it, I'm not sure would be constructive relative to how much of that is hiring versus other things. But nonetheless, we had sized it and that number is still our estimate of the impact for this year.

Got it. And then one follow-up on the tariff discussion. If there are tariffs on some of the ingredients, do you anticipate it could have any impact on the timing of drug shipments or availability?

Again, without any more visibility into what might happen, I don't anticipate that. I'm not sure why a tariff might impact timing of shipments. But beyond that, I can't speculate.

Our next question is coming from [indiscernible] [00:38:59], and she's from Bank of America. [Dev], your line is live.

[Dev] on here for Allen Lutz. I'm just trying to understand a little bit about pricing benefits in the guide and in the quarter here. Could you just remind us how much, if at all, of a pricing benefit is expected in ART cycles for the year? What you're seeing here early on in Q1? And just maybe just that versus like typical inflation in IVF procedures and cost versus kind of historical ranges? And then I got one more follow-up.

Yes. I think you're referring to the growth and how much of the growth is driven by price. The answer is not really any. So, it's all a function of engagement and consumption and activity with the benefit as opposed to price.

Okay. Great. And is that -- does the same whole for, I guess, the pharmacy benefit? I'm just curious how a drug price branded versus generic inflation layers into that for the quarter and I guess, expectations for the year there as well?

Yes. But the pharmacy benefit, it's very, very little. There are moderate drug price increases to certain drugs that are incorporated in it. But again, the majority of it is due to the larger number of lives under management and the activity within those members.

At this time, I don't see any further questions in the queue. I will now hand back over to James for any further comments.

Thank you so much, Jenny. Thanks, everyone, for joining us this afternoon. Please feel free to reach out to me in the next few days or otherwise, I'm sure we'll see many of you next week at the Bank of America conference. Thanks again for your time.

Thank you very much. That does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful rest of the day. We thank you for your participation.